евоок PPOblem Walk-Through Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 6.95% 14% 0.7 9.05 14 1.3 10.10 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM - TRF)? Round your answer to one decimal place. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. What would you expect the standard deviation of Fund P to be? I. Less than 14% II. Greater than 14%

евоок PPOblem Walk-Through Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 6.95% 14% 0.7 9.05 14 1.3 10.10 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM - TRF)? Round your answer to one decimal place. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. What would you expect the standard deviation of Fund P to be? I. Less than 14% II. Greater than 14%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 11.45% 14% 0.9 B 12.55 14 1.1 C 15.30 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 6.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) What is the market risk premium (rM - rRF)? Round your answer to one decimal place. % What is the beta of Fund P? Do not round intermediate
You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…
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Consider the characteristics of the following three stocks Expected Return Standard Deviation Pic Image 19 % 25 % Tax Help 18 25 Warm Wear 32 28 The correlation between Pic Image and Tax Help is 0.78. The correlation between Pic Image and Warm Wear is −0.21. The correlation between Tax Help and Warm Wear is −0.17.Select only two stocks for your portfolio based on expected returns and correlation. A. Tax Help and Warm Wear B. Pic Image and Warm Wear C. Tax Help and Pic Image :
Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 6.95% 15% 0.7 B 8.35 15 1.1 C 10.45 15 1.7 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) What is the market risk premium (rM - rRF)? Round your answer to one decimal place. % What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % What would you expect the standard deviation of Fund P to be? Less than 15% Greater than 15% Equal to 15%
As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 f the risk-free rate (RFR) is 3.9% and the expected market risk premium (i.e., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ.
As an active fund manager, you have obtained information on three individual stocks, the market index, and T-bills as follows: Expected Return (%) Asset Stock 1 Stock 2 Stock 3 Market Index T-bills 20.0 16.0 6.0 10.0 4.0 Total Standard Deviation (%) 80.00 60.00 50.00 40.00 0.00 Beta 1.8 1.4 0.8 1.0 0.0 You decide to use the above information to form an optimal active portfolio, consisting of the three individual stocks. Determine the corresponding weights for the three stocks in the optimal active portfolio. Show your work.
Consider the following information for Stocks A,B, and C. The returns on the three stocks are positively correlated, but they are not perfectlycorrelated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation BetaA 9.55% 15% 0.9B 10.45 15 1.1C 12.70 15 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.)a. What is the market risk premium (rM - rRF)?b. What is the beta of Fund P?c. What is the required return of Fund P?d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%,or greater than 15%? Explain.
Qn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolio
onsider 123 Fund (which is invested in 35% High risk stock and 65% normal bonds). Assume you have the following historical data of annual returns: Return S.D. Normal Stock 8% 20% Risky Bonds 10% 35% High Risk Stock 14% 40% Normal Bonds 6% 10% Assume High Risk Stocks and Normal Bonds have correlation coefficient of 0.24 Find the standard deviation of 123. Please use 5 decimal places in your response. Note: The right answer is 0.1679 Please explain step by step
Below are standard deviations of four stocks: M, N, O and P. Stock M N O P Standard deviation 12% 20% 15% 30% 1. Which stock is the riskest? 2. Based on the risk-return tradeoff, which stock should provide the highest 3. If stock O provides a higher return than stock P, what should happen?
The beta coefficient A stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. Beta measures the volatility in stock movements relative to the market. A stock that is more volatile than the market will have a beta of less than 1.0. Q1. Option 1 Unsystematic or Option 2 Relevant. Please provide true or false answers. Thank you!

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